Learn about fair housing laws, how they prevent discrimination in real estate, and key scenarios that investors should look out for.
The Fair Housing Act is a federal law prohibiting housing discrimination. Passed in 1968, fair housing laws protect individuals from experiencing discrimination in the buying, renting, selling, and financing of property. The Fair Housing Act is technically part of a larger piece of legislation, the Civil Rights Act of 1968.
Although the Civil Rights Act was first signed into law in 1964, housing discrimination towards people of color persisted well into the late 60’s, and beyond. People of color were often redlined, denying them the ability to purchase or build properties in desirable communities.
The Civil Rights Act of 1968 was meant to strengthen laws passed in 1964, specifically in regards to housing discrimination. The Federal Fair Housing Act applies to essentially everyone involved in the real estate business including real estate companies, home insurance companies, lending institutions, mortgage institutions, developers, landlords, brokers, and agents.
Over the years, the Fair Housing Act has expanded to prevent housing discrimination from several protected classes. Protected classes previously referred to a person’s race, skin color, religion, sex, and national origin, but they now include additional protections for gender, single parents, and people with disabilities.
Given that the Federal Fair Housing Act is more than 50 years old and that multiple amendments have been made since its introduction, it’s important for real estate investors to understand how the Fair Housing Act is applied.
The Fair Housing Act allows for defendants to file a fair housing complaint directly with the Department of Housing and Urban Development (HUD). Unfortunately, housing discrimination persists and is often difficult to prove. Winning a case in court requires proper documentation, an experienced lawyer, and some patience.
Tenants and landlords can find additional information about what legally classifies as housing discrimination on the HUD website, as well as how to move forward should the case be brought to court.
Note that state and local regulators are allowed to expand on fair housing laws, which means that more restrictions may apply depending on where your property is. For example, in New York state, a landlord or a mortgage lender cannot inquire about a person’s criminal record. And New York City explicitly prohibits discrimination on the basis of immigration status, occupation, ethnic hairstyles, and other cultural attributes.
There are numerous situations in which a prospective tenant or homebuyer may feel like the Federal Fair Housing Act is being violated. Here are four scenarios that landlords, agents, mortgage lenders, and developers should be aware of in order to avoid discriminating against protected classes.
In highly competitive rental markets such as Miami, Grand Rapids, and Orlando, it can be difficult to prove a landlord is withholding availability from a tenant based on their protected class. This is because apartments in these cities spend just a few days on the market before they are occupied. It’s likely that if a landlord lists a unit on the 1st, it will be occupied as early as the 15th.
However, if a landlord is caught telling one prospective tenant that the apartment is available and another prospective tenant of a different race that the apartment is not available, this could be considered a violation of fair housing laws. This is especially true if the apartment ends up being leased after the tenant of color was told that it was already rented.
Instructing a real estate agent to show a home for sale exclusively to a specific group of people could easily get both the seller and agent in trouble. Refusing to show a home to a protected class is a direct violation of the Fair Housing Act. The only way a seller can get around this is if they choose to list their home privately as a pocket listing.
A pocket listing allows for sellers and agents to promote a home sale to a curated list of individuals. However, a pocket listing has the disadvantage of not being listed on the open market, which could negatively impact your earnings potential. Pocket listings are available to all sellers, but are more common among high-net-worth individuals because of the privacy they provide.
Agents can also violate fair housing laws for suggesting a buyer look in a different neighborhood based on their race, religion, or other protected class. This can get tricky, but unless a buyer explicitly mentions that they want to see a property in a certain kind of community, agents should be wary of redirecting them there, as this could be an unconscious bias at play.
This scenario applies to mortgage lenders and banks more than it does to landlords or agents, but it can still affect the sale of a home if the prospective buyer becomes aware of it during the closing process.
If a prospective buyer realizes that their mortgage loan documents come with absorbently high interest rates or unfair loan terms, they could easily pull out of the sale claiming violation of fair housing laws.
An example of this would be a mortgage lender charging higher interest rates for home loans in predominantly Latino neighborhoods than in predominantly white neighborhoods. Another scenario would be a bank suggesting a loan with unfavorable terms to a single parent based on their familial status. In both instances, the Fair Housing Act is being violated.
Although further removed from the rental and buying process, builders and developers should also be aware of how the Fair Housing Act applies to them. If a recently built condominium doesn’t comply with accessibility requirements, developers could be held responsible for not providing fair housing access to individuals with disabilities. Fair housing laws vary by state and local municipalities, so it’s wise to check local housing laws before starting construction on any new developments.
The Fair Housing Act covers most types of housing — and for this reason, it’s safe to assume that fair housing laws apply to your real estate investments. However, HUD notes that in “very limited circumstances,” the Fair Housing Act exempts the following types of housing:
The Fair Housing Act prohibits turning away a tenant or buyer based on their race, color, religion, sex, gender identity, gender expression, sexual orientation, disability, familial status, marriage status, national origin, and/or immigration status.
A comprehensive list of what is illegal can be found on the HUD’s website. Here are a few violations of fair housing laws that may not be as obvious:
As a seller or landlord your responsibility is to provide fair buying or rental access to any serious buyer or tenant interested in your property. While of course, you have the right as a seller, landlord, or developer to receive a fair return on your investment, you cannot do so at the expense of fair housing opportunities to those interested.
Abiding by fair housing laws can seem overwhelming at first, but as long as you are aware of the housing laws that apply to your jurisdiction and are genuinely interested in giving everyone a fair shot at renting your property, you shouldn’t run into any issues. That’s why you, your agent, your property manager, and anyone else involved in the sale or rental of your property should stay informed about the local fair housing laws.
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